It seems recently that hardly a day goes by without more media clamor for the potential of psychedelic medicine to revolutionize the treatment of mental health.
The Revolution is coming. The question for investors: how to profit from it?
One path is to focus on treatment. With 2+ billion people globally suffering from treatable mental health disorders (and conventional therapies woefully inadequate), there is an enormous amount of untapped potential here.
However, in the pharmaceutical industry drug patents – and the revenue streams they can generate – are still seen as the premier company-makers. This adds an additional layer of complexity in investing in psychedelic drug stocks.
Drug patents are a difficult subject for an investor to wrap their head around. First there is the science, trying to understand complex chemical compounds, and trying to separate the contenders from the pretenders in R&D.
Then there is the law. Even law firms are generally specialists when it comes to patent law because of the complexity of the legal issues involved.
Questions arise around some psychedelic drug patents
Such questions around patents and patent law have suddenly become more pertinent to psychedelic stock investors.
A few psychedelics companies are already seeing challenges to patents that have been awarded. A few others have simply walked away from a particular molecule and moved on to the next candidate in their pipeline.
The problem is that while these psychedelic drugs have been in a regulatory deep-freeze for 50 years (thanks to the War on Drugs) they are still known drugs already in the public domain.
Natural substances like psilocybin and “toad venom” (5-MeO-DMT) are not patentable. Neither are known synthetics like LSD and MDMA. Thus, companies seeking patentable drugs have to devise their own “novel molecules”.
These are new, proprietary formulations derived from existing drugs that are chemically similar to known substances, but sufficiently altered and innovative to be considered novel drugs.
This raises questions of law. What exactly constitutes “novel” or “innovative” in the context of patenting a chemical molecule?
Psychedelic medicine may indeed revolutionize the treatment of mental health. However, without medicines that these public and private companies are capable of patenting, much of the home-run potential in the industry would be lost.
Knowing the importance of these issues to investors, Psychedelic Stock Watch went looking for answers and clarification. One public company that has been in the news recently with respect to psychedelic drug development is Mindset Pharma (CAN:MSET / US:MSSTF).
New excitement in psychedelic drug R&D
In January, Mindset announced a drug development partnership with a subsidiary of pharmaceutical giant, Otsuka Pharmaceutical. Mindset will develop new novel psychedelic drug molecules, financed by Otsuka, with Otsuka having right of first refusal for any drugs emerging from that research.
Mindset is known in the industry as “a novel molecule developer”. Mindset isn’t interested in taking drugs all the way through the clinical trials process itself. Rather, its business model revolves around identifying and developing “novel molecules” that demonstrate potential medical efficacy.
Mindset then intends to farm out these novel molecules to larger drug companies, who will then pilot these substances through their own clinical trials.
For larger drug companies to be interested in these novel molecules, however, they need to be patentable. Consequently, Mindset’s legal team plays almost as important a role in drug R&D as the research team itself.
In a recent conversation with Psychedelic Stock Watch, we asked Mindset CEO James Lanthier to address investor concerns on the patent potential of psychedelic drugs and the novel molecules that are emerging from drug R&D.
“In our view the business case for next generation drugs was and is clear. First generation drugs have shortcomings that can be optimized through careful drug design and screening - addressing issues such as duration and safety will enable psychedelic medications to realize their full potential as predictable and effective treatments for large patient groups. Additionally, given that they are "new", next generation drugs can enjoy much stronger intellectual property rights, which is essential for the broader pharma industry to make the investments necessary to bring them to market. Mindset's collaboration with Otsuka Pharmaceuticals is the clearest evidence yet for the value opportunity in new drugs.”
While the likelihood of “first generation” psychedelic drug R&D producing a home run for investors is still uncertain, as Lanthier observes these drug companies are just getting started in optimizing these molecules with their R&D.
Unlimited potential in psychedelic drug development
Drug development in the psychedelics industry is not like an at-bat in baseball: three strikes and you’re out. Instead, it’s more like an entire baseball game.
If a particular drug developer or novel molecule developer doesn’t register a “hit” in their first trip to the plate, there will be more at-bats in later innings.
This echoes what CEO Doug Drysdale of Cybin Inc (US:CYBN / CAN:CYBN) had said to Psychedelic Stock Watch in a previous conversation. The first candidate in a company’s pipeline may not make it to the finish line. But the research derived from that original discovery could produce even stronger candidates.
In speaking with Psychedelic Stock Watch, Lanthier then added an even more intriguing and prospective element to the whole drug development equation for psychedelic drug companies.
Known (and more popular) psychedelic drugs like those mentioned above are the focus of almost all current psychedelics R&D. But there are literally dozens of other psychedelic drugs: chemical compounds with known “psychedelic” properties.
Why aren’t these other psychedelics already being incorporated into the first generation of psychedelic drug R&D? Lanthier explained further.
"The universe of known psychedelic drugs extends well beyond those that we hear about today in the media: Shulgin and the other trailblazing psychedelic scientists of the 20th century identified hundreds of psychedelic molecules. Unfortunately for all of us the knee jerk prohibitions against psychedelic drugs made it impractical for pharma to continue studying these lesser well-known drugs, and as such they are sort of the undiscovered continent of psychedelics.
To us their existence suggests that there may be a substantially larger spectrum of psychedelic compounds that can and should be studied and evaluated for their therapeutic potential, and which could potentially be improved upon for their pharmacological characteristics through the drug design strategies that we are continuously refining at Mindset."
To us their existence suggests that there may be a substantially larger spectrum of psychedelic compounds that can and should be studied and evaluated for their therapeutic potential, and which could potentially be improved upon for their pharmacological characteristics through the drug design strategies that we are continuously refining at Mindset."
Therefore, the fact that natural and synthetic substances like psilocybin, MDMA, LSD, ibogaine (and others) have been chosen as initial research candidates is not a matter of necessity, but rather expediency.
Early psychedelic drug R&D is focusing on the better-known psychedelics because they were already the subject of pre-Prohibition research into mental health applications. There is an existing body of clinical data off of which to build.
Conversely, the dozens of lesser-known psychedelics are still a blank slate from a research perspective. And “blank slate” equates to larger and greener pastures when it comes to drug development and patenting.
For these reasons, CEO Lanthier is expecting to see more drug development partnerships emerging in the psychedelics space, similar to Mindset’s own deal with Otsuka Pharmaceuticals.
A ground-floor, multi-decade investment opportunity
Putting this into perspective for investors, the psychedelic drug industry is still early in the first inning when it comes to developing new drugs.
Hiccups in early efforts to produce patentable (and lucrative) pharmaceuticals by this industry are not a cause for concern. Rather, they are more like expected developments.
With over $300 billion per year spent on mental health in the United States alone, the drug licensing potential in psychedelics (developing medicines that actually work) is gigantic.
In baseball, a batter rarely hits a homerun his first time up. But experienced players learn from earlier at-bats and become more likely to zero in on a homerun pitch later in the game. Psychedelic drug companies have loaded up on experienced players from the pharmaceutical industry.
With dozens of psychedelic drugs to work with and several “generations” of drug development ahead, ultimately psychedelic drug R&D will not be measured in years but rather decades.
For investors, psychedelic drug stocks remain a ground-floor investment opportunity with enormous home-run potential in drug development.
DISCLOSURE: The writer holds shares in Mindset Pharma and Cybin Inc.